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The Institutional Evolution of China

Government vs Market

Fan Zhang

China’s experience over the past decades is not just a story of economic growth, it is also one of institutional change. The current political-economic system is a bureaucratic market system, in which the government and the market both coexist and conflict with each other. This book gives a detailed description of the institutional evolution in China, using large amounts of documents and cases. The book provides a theory explaining the origin of China’s reform, the political and economic forces driving the reform, and the reasoning behind the stagnation and turn-over of reform.
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Index

Fan Zhang

3rd plenary of the 14th CCP Central Committee 1056, 124, 129
3rd plenary of the 18th CCP Central Committee 2256
13th CCP Congress 96, 98, 100
15th CCP congress 1068, 247
Administrative Coercion Law 197
Administrative Licensing Law 196
Administrative Litigation Law 96
administrative omission 22021
Administrative Penalty Law 197
Administrative Reconsideration Law 197
Administrative Supervision Law 197
advance of the state vs the retreat of the private firms 179, 186
Agricultural Bank of China 77, 199
Agricultural Development Bank of China 71, 130
Alibaba 116
analytical framework
literature review 917
theory of the relationship between government and market 1722
anti-corruption movement 21820, 241
Anti-Money Laundering Law 208, 222
Antitrust Law 149, 195
appeal system 241
approval certificate after business license 231
Auction Law 168
Audit Law 222
automobile industry 120
Baidu 187
Bank of America 199200
Bank of China 98, 198200
Banking Supervision Law 195
banks
foreign 201
in 1980s 7073
in 1990s 12932
in planned economy 345
restructuring 198201
urban development bank 201
Beijing jeep 6061
Bo Xilai 213, 219
bond
corporate 57, 205
market 1357, 2045
treasury 57, 2045
bribes and corruption 2445
Budget Law 224
bureaucratic-market system achievements and weakness 23543
and corruption 24, 8, 11618
definition 1
restrictions on government power 238
capital acount convertibility 228
CCDI see Central Commission for Discipline Inspection
central bank 7071, 745, 129, 138, 192, 195
Central Commission for Discipline Inspection (CCDI) 21820
central government
revenue and expenditure 1234, 18890
Central Huijin Investment Corporation 198200
central-local government relationship
division of revenue and expenditure classified contract 8890
financial responsibility system 91
Changhong 117
Charity Law 222
checks and balances 92, 23942, 25860
Chen Chunxian 61
Chen Yun 47, 98
China Construction Bank 130
China Development Bank 130, 136, 200
China Insurance Regulatory Commission (CIRC) 132
China International Trust & Investment Company (CITIC) 61, 714
China National Petroleum Corporation (CNPC) 207
China Security Regulation Commission (CSRC) 1335, 2023, 2289
Chunlan 112
Civil Servant Law 197, 242
civil service reforms 934
class
division 164
and social mobility 245
Coca-Cola 60
collapse of private export-oriented sector 211
collective farming
household plots 47
people’s commune 28, 39, 53, 93
command-and-control (1949–1978)
collective farming 289
development strategy and planning 278
financial system 345
formation of consensus on reform 412
households 324
institutional chart of economic system under the planned economy 35
political system and government 237
problems 361
urban enterprises 2932
commercial paper market 75, 2056
commune and brigade run enterprises 55
Communist Party of China (CCP) 24
conditions for government intervention set by economic theory 1718
consensus on reform 2, 22, 412, 155, 213, 258
Constitution 5, 59, 68, 87, 946, 148, 190, 193, 238, 249
Construction Bank of China 71, 198200
Contract law 956, 149
Copyright Law 150, 194
Corporation Law 106, 146, 1489, 1767, 194, 222
corruption
among government officials and business executives 23, 8, 237, 258
institutional reasons 1712
supervision 172
types 171
Cultural Revolution 2, 78, 35, 3942, 44, 989, 152, 155, 2578
Cybersecurity Law 217, 225
Dai Guofang 119
danwei 160
Dazhong Agricultural Products Wholesale Market 67
debt
corporate 76
government 198, 224, 232
decentralisation
of authority 7, 12, 1314, 867, 100
of financial resources 88, 250
independent planning status 878
regional 15
decree barrier 3, 257
Deng Xiaoping 4041, 467, 60, 81, 85, 94, 979, 1012, 105, 170
Deng’s south inspection 84, 104
Ding Lei 115, 187
Du Ling 207
Dual track approach 46, 245
Eastman Kodak 108
Economic Contract Law 956, 149
economic performance 2, 57, 13, 19, 21, 1267, 237, 240, 246
economic policy vs social stability policy 2, 1920, 256
economic reform
black swan event 8, 257
in countryside 49
from Cultural Revolution 2, 7
government-led nature 3, 9
and inequality 170
market-oriented 6, 21, 260
in the past decades 1, 6, 9, 23, 255
in urban areas 55, 57
without political counterpart 8, 99, 2578
Electoral Law for the National People’s Congress and Local People’s Congress 225
enforcement of laws 238
Enterprise Bankruptcy Law 96, 194
Enterprise Income Tax Law 194
Enterprise State-owned Assets Law 148
environmental problems 163
Environmental Protection Law 223
equity division 2034
exchange rate 9, 27, 1434, 1589, 228
Export-Import Bank of China 130, 136
export-oriented sector 21112
factor market 2467
Fan Dongsheng 214
Fang Xiao 1067
FIE see foreign invested enterprises
financial crisis and slowdown of growth 211
financial leasing companies 133, 202
financial market
commercial paper market 75, 2056
inter-bank money market 745, 1378, 2056
repo market 75, 1378, 2056
financial reforms (1990–2003)
banks 12932
bond market 1357
financial system 12842
money market 1378
non-banking financial institutions 1323
stock exchange 1335
structure 14042
underground financial sector 13840
financial reforms (2003–2012)
banking system 198201
money market 2056
non-banking institutes 2012
non-performance loans (NPLs) 198
stock and bond market 2025
underground financial system 20610
financial reforms (2012–) 22730
first Chinese firm listed in overseas market 111
Food Safety Law 223
Fool Melon Seeds 60
foreign banks 72, 99, 128, 1312, 158, 201
Foreign Economic Contract Law 96, 149
foreign invested enterprises (FIEs) 60, 85, 1468
foreign investment
laws and regulations 85, 145
Foreign Trade Law 142, 150, 223
formal laws and regulations 946, 14850
four brothers of Liu family 63
four cardinal principles 97
from command-and-control to reform 2343
GEELY auto 1856
Goldman Sachs 199200
GOME Electric Appliance 1867
Gong Jialong 186, 247
governance
standardisation 2215
government
administrativisation 1938, 2215
central 7, 2021, 247, 30, 368, 8693, 11819, 1227, 18893, 217, 22021, 233, 236, 250, 260
civil service reform 934
control 2, 6, 8, 9, 19, 22532, 238, 244, 251, 260
decentralisation 7, 125, 868, 100, 203, 250
investment 178, 212, 248
local 7, 13, 2021, 247, 378, 545, 58, 73, 823, 8693, 105, 11415, 11619, 1218, 1345, 156, 161, 163, 18793, 217, 220, 224, 233
role of 4, 10, 190
target 2, 1822
vertical management 245, 28, 35, 912, 1923
government intervention
conditions 2, 1718, 256
Government Procurement Law 224
government vs market
boundary between government and market 256
different views among leaders 97100
roles 23543, 255
government-business relationship 116
government-led market economy 122
Great Leap Forward 39
Great Wall Oil 186
growth
slowdown 21112, 2324
Guandao 245
Guanxi 151
Haier 62, 113
Handan Steel 105
health care 124, 155, 161, 210, 212
honesty and credibility 244
household responsibility system
distribute the plots to households 489, 534
economic effects 513
forms 49
four poor villages 5051
Xiaogang 489
households
under the planned system 324, 356
housing 160, 2323
Hu Jintao 155
Hu Yaobang 98, 101
Huang Guangyu 1867
Huawei 113
Hukou 33, 69, 1623, 231
human value and attitudes of Chinese people 2435
improved government-market system 259
incentives of officials 22021
incentives problem 37
income inequality
eastern, middle and western 16870
Gini 128, 16970
urban-rural 127, 16870
index of marketisation 24953
Individual Income Tax Law 195
Industrial and Commercial Bank of China 7071, 74, 12930, 134, 199202
inequality 1, 45, 16477, 172, 21213, 256
informal financial sector
pawnshops 79, 212
underground bank 7880, 13940, 2069
usury 79, 208, 21112
infrastructure construction 159, 198
institutional advantages and defects
bribe and corruption 2445
classes and social mobility 245
human nature of Chinese people 2434
institutional change 12, 59, 1417, 105, 159, 248, 255
institutional chart of the economic system
under the planned economy 35
Institutions 1417
Insurance Law 132, 195, 222
insurance market 1323
interest rate marketisation 227
Interim Regulations on Residence Permits 223
Jiang Zemin 101, 107
Jianlibao 112
Joint Factory 718 3031
labour
cost 211, 230, 232
migration 162
Labour Contract Law 222
Labour Law 195
land
administration 192, 2489
finance 18892
property rights 3, 257, 260
law
further developments 148
improvement 2215
rule of 2423
weakness of 2389
Law on the Administration of Tax Collection 224
Law on the Administration of Urban Real Estate 194
Law on Commercial Banks 208, 222
Law on Individual Proprietorship Enterprises 149
Law on Individual Wholly Owned Enterprises 150
Law on Industrial Enterprises Owned by the Whole People 57, 96
Law of Land Administration 194
Law on Land Contract in Rural Areas 194
Law on Legislation 150
Law on Negotiable Instruments 195
Law on the People’s Bank of China 195
Law on the Prevention and Control of Atmospheric Pollution 224
Law on Promotion of Small- and Medium-sized Enterprises 149
Law on the Protection of Disabled Persons 195
Law on the Protection of Minors 195
Law on the Protection of Rights and Interests of Women 195
Law on the Protection of Wildlife 224
Law on the Supervision by the Standing Committee of the People’s Congress at Various Levels 197
Law on Sino-Foreign Cooperative Joint Ventures 85, 96
Law on Sino-Foreign Equity Joint Ventures 223
Law against Unfair Competition 149
Law on Wholly Foreign-Owned Enterprises 96
laws and regulations (1990–2003)
Formal laws 14850
informal mechanisms 15051
Legislation Law 224
Lenovo 84, 187
lessons learned
behavior foundation of institutional advantage and defects 2435
checks and balances 23942
long-run expectations 25360
measuring influence of government and market 24953
roles of government and market 23543
unfinished reform 2469
weakness of legal system 2389
Li Jingwei 112
Li Ka-shing Fund 199
Li Keqiang 230, 234
Li Shufu 185
Lianxiang 115
lines and blocks 245, 227
Ling Jihua 219
literature review
institutional changes 1417
relationship between government and market 1014
Liu Chuanzhi 61, 112, 187
Liushi 656
local governemnt
competition 13, 1268
as engine of growth 18793
extra-budgetary revenue and land finance 18892
franchise/subcontracting 1215
multiple criteria 1923
political competition 13, 1212
vertical management 1923
logic of government 3, 216, 221, 238, 259
logic of the market 21, 216, 234, 259
long-run expectations 25360
long term vitality of economy 257
Ma Huateng 116
Ma, Jack 116
Ma Shengli 58
macro-economic control 967, 11819
Mao Zedong 24, 36, 39, 99
market
creation 1, 2, 6, 7, 17, 47, 6370, 967, 222
enthusiasm 3, 104, 259
facilities 668
factor market 246, 250
labour market 68
land market 68, 191, 249
product market 17, 2467, 250
property market 2489
role of 52, 226
rural commodity circulation 66
marketisation 2, 11, 1556, 21213, 216, 22532, 259
marketisation index 24953
Merrill Lynch 199
mobilisation force 3, 259
money market
bond repo market 1378, 2056
commercial paper market 75, 2056
inter-bank money market 745, 1378, 2056
money laundering 2089
National Securities Law 224
natural monopoly industries
airlines 18082
coal 1789
electricity 17980
governance structure 15, 127, 1767, 198, 226, 248
petroleum 179
property rights 23, 5, 1416, 18, 212, 45, 107, 11113, 115, 1725, 178, 194, 236, 2389, 248, 25560
railways 1823
telecommunications 1834
Naughton, Barry 5, 6, 16, 98, 151
Netease 115, 187
new class division 1647
non-banking financial institutions
financial leasing services 74
insurance companies 73, 1323, 2014
security companies 73, 133, 204
trust companies 73, 133, 138, 202
non-performance loans (NPLs) 131, 133, 198200
Normative Opinion on Joint-Stock Companies and Normative Opinion on Limited Liability Companies 148
North, Douglas 5, 14, 21, 148
official accountability system 217, 22021
official class 39
official performance criteria 193
official promotion 1267, 193
opening up special economic zones and foreign investment 46, 72, 81, 836
opening up (1979–1989)
changing strategy of development 81
reform of government foreign trade management system 813
special economic zones 836
opening up (1990–2003)
exchange rate system 1434
export tax rebate 1445
foreign firms 1458
foreign investment 1458
investment incentives 1445
opening up (2012–) 22930
ownership reform of SOEs
mass layoffs 108
selling small SOEs see Fang Xiao
Zhua Da (improving large SOEs) 1069
ownership structure of SOEs 1727
Panasonic 60
Partnership Law 14950, 194
Patent Law 96, 157, 194
path dependence 2, 7, 223, 44, 153, 230, 258, 260
People’s Bank of China 28, 345, 7074, 12937, 144, 159, 192, 195, 2036, 20810
People’s Commune
end 53, 93
organization 28, 39
petitioning bureaus 241
Pharmaceutical Administration Law 223
planned system
collective farming 289
development strategy 278
financial system 345
institution chart 35
political system 234
problems 3641
social security 334
urban enterprises 2932
urban and rural households 324
political coalition (1990–2003) 1513
political competition 1268
political-economic model of government decision-making in a bureaucratic-market economy 1822
political infrastructure 257
political meritocracy 12, 240
political turmoil 3841, 44, 152
pollution 163
Population and Family Planning Law 223
post-reform period
continued marketisation 22532
re-concentration of power 21725
slow-down of growth 2324
power
restructuring 3, 216
restraining 3, 11, 216
Price Law 149
price reform
distortion of prices 27, 634, 259
dual system 635, 96
Price Breaking through the Barrier 645
private firms
birth 5963
development under government regulation 1856
difficulties 21112, 23032
high-tech companies 11516
improving management 11315
recapitalisation 11013
strategic development 142
private firms (2012–) 1857
procurement 29, 54, 64, 224
processing manufacturing 146
processing trade 146
product market 2467
Product Quality Law 196
Property Law 194
property market 248
Provisional Regulations on Private Enterprises 96
Provisional Regulations on the Administration of Urban and Township Individual Industrial and Commercial Households 96
Provisions on the Grant and Transfer of Use Rights in Urban Land 150
Qin Dynasty 37
Qualified Domestic Individual Investor (QDII) 203
Qualified Foreign Institutional Investors (QFII) 203
reform
gradual strategy 46
inertia 156
limit 457
need to be achieved 3
non-balanced political counter part of 3
plan 46
stagnation and turnover 1556
target 45
unfinished 2469, 2578
reform (1979–1989)
end of the first stage 100101
financial system 7080
freeing prices 636
government 8697
government vs market 97100
houshold responsibility system 4754
limits 46
opening-up 8086
summary of the passage of reform 1012
target and approach 456
urban enterprises 5563
reform (1990–2003)
diversity of solutions in private sector 11019
financial system 12842
laws and regulations 14851
local government 1218
opening up 1428
political coalition 1513
specific industrial sectors 11921
reform (2003–2012)
corruption 1712
financial crisis 21112
financial reform 198210
government administrativisation 1938
inequality 16471
inertia 15660
local government 18793
ownership structure of SOEs 17285
private firms 1857
social problems 1603
reform of political system
Deng’s idea 989
Zhao Ziyang 99100
reforms in industrial sectors
automobile 12021
steel and iron 11920
Regulation on the Expropriation of Buildings on State-owned Land and Compensation 194
Regulations on the Disclosure of Government Information 197
relationship between central and local governments 13, 86, 88, 187
relationship between government and market 1, 11819, 2358
Ren Zhengfei 113
Research Group of Rural Development 49
resident registration system see Hukou
returned youth 59
Rong Yiren 61
Royal Bank of Scotland 199
rule of law vs administrating by law 2423
rules
formal 148
informal 9, 239
rural credit cooperatives 72, 195
rural land ownership 242
rural-urban migration 33, 162, 168, 171, 223, 231
SASAC 1747, 226
Securities Investment Fund Law 222
Securities Law 133, 137, 146, 149, 222, 224
security companies 73, 133, 204
Shanghai Feile Audio 57, 134
Shanghai Free-Trade Zone 22930
shareholding banks 712
Shekou 84
Shenyang Jinbei 111
Shenzhen 46, 68, 835, 104, 166, 191, 207
Sina 115
Sino-foreign joint venture 96, 147
SINOPEC or China Petroleum & Chemical Corporation 179, 207
slow-down of growth 2323
small-sum loan companies 20910
Social Insurance Law 195
Social Intermediary Organisations and NGO 121
social mobiity 166, 245
social problems
environment 163
health care 1612
housing 16061
social security system reform 10910
SOEs
contract responsibility system 569
financial statistics 173
in key sectors 2267
ownership structure 1727
parent and subsidiary companies 83, 1757
performance 140, 1845
reform 569, 1069, 1727, 2267, 237, 2478
shareholding 578, 113
special inspectors 176
state-owned assets 1735, 2267, 247
state-owned holding companies 1757
SOE-dominated sectors 2267
Sohu 115
sole proprietorship 95, 114, 149
southern-Jiangsu mode 11315
source of legitimacy 2, 19, 45, 152, 217, 256
special economic zones 46, 72, 836
specific industrial sectors 119
Speculations of Wenzhou Investors 140
stagnation (2003–2012) 155215
State Administration of Foreign Exchange (SAFE) 71
state capitalism 172
state-owned assets 1735
State-owned Assets Supervision and Administration Commission see SASAC
state-owned-enterprises see SOEs
Statistics Law 196
steel and iron industry 119
stock market 128, 1348, 13940, 2025, 22830
Tai Hui 78
Tao Jianxing 112, 117
tax
rebate 1445
reform 9091, 104, 1225, 229
import tarriff 145
TCL 108
Technology Contract Law 96, 14950
Temasek Holdings 199200
Tencent 116
theoretical boundary between the government and the market conditions for government intervention set by economic theory 2, 18
political-economic model of government decision-making 1822
three represents 1512
Tiananmen Square movement 8, 65, 98, 100101
Tieben 119
Tort Law 194
township and village enterprises 545
Trade Union Law 195
Trademark Law 222
transaction cost
definition 21
of doing business 230, 232
and formal laws 150
and institutional evolution 236, 255
of marketisation 87, 197
in political economy model 19
and reform 52, 258
trust companies 73, 133, 202
Trust Law 150, 195
TVEs see township and village enterprises
UBS 199
underground financial system 20610
unfinished reform
land administration and property market 2489
product market and factor market 250
reform of SOEs 2478
urban commercial bank 131, 200201
urban enterprises
birth of non-state-owned enterprises 5963
Enterprise Autonomy and Contract Responsibility System 569
under the planned system 2932
urbanisation 160, 212, 223, 231, 248
Wan Li 46, 48
Wang Dayong 214
Wang Jiguang 214
Wang Qishan 21718
Wang Zhidong 115
Water Pollution Prevention and Control Law 196
Wen Jiabao 155
Wenzhou 48, 60
Wenzhou mode 11315
Wholly Foreign-owned Enterprise Law 223
Work Safety Law 223
WTO entry
improved laws and regulations 158
membership 156
tax rebates 1445
Xi Jinping 21618
Xiaogang village 489
Xuanwu Capacitors Factory 24
Yin Hongbiao 31
Yiwu Small Commodities Wholesale Market 68
Zhang Chaoyang 115
Zhang Ruimin 62, 113
Zhao Ziyang 46, 645, 979
Zhou Yongkang 219
Zhu Rongji 105, 108, 118, 125, 1567
Zhucheng Electric Machinery Factory in Weifang 107
Zhuhai 46, 834, 104